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PREMIUM TIMES has uncovered one of the most fraudulent crude oil deals carried out by the administration of Goodluck Jonathan, which saw cronies of the president pocket billions of naira through a domestic crude oil transportation contract that violated Nigeria’s procurement and economic regulations.

Our estimates indicate that the contracts, which the Nigerian National Petroleum Corporation has now admitted were unnecessarily exorbitant and inappropriately awarded, cost Nigeria hundreds of billions.

Although the companies involved claimed they transported 65.5 million barrels of crude oil in the process, the true value of service they offered to pocket that amount remains unclear even to the state oil company, insiders say.

The deal, later disguised as security contract and channeled through the NNPC, saw two companies belonging to Idahosa Okunbor and Tunde Ayeni rack up billions of naira to purportedly transport crude oil from Escravos to Warri refinery, and Bonny Island to Port Harcourt refinery, by ship, since 2011.

The deal involved the transportation of close to five million barrels of crude oil, monthly, from drilling terminals to the refineries using ships, and circumventing direct linking pipelines, at the cost of at least N1,131.74 ($5.68 USD) per barrel of crude.

The cost of this contract is several times higher than it takes to transport crude oil through the more efficient pipelines which PPMC, a subsidiary of the NNPC operates. The cost of transporting a barrel of crude through the pipeline is as low as 5.97 naira.

Although, awarding the firms the job to transport crude oil by ships was a very expensive alternative, the administration pressed on, ignoring the fact that it increased the cost of transporting only a fraction of locally refined crude oil by several billions of naira monthly and was economically unjustifiable.

Nigeria crude oil pipeline distribution map. Source: Oandoplc.com

While the contract lasted, the NNPC, at the same time, transported crude through a national pipeline that originated from Escravos and landed in Warri Refinery before proceeding to Kaduna Refinery.

The Escravos-Warri Refinery arm of the project was conceived in 2010, shortly after Goodluck Jonathan became president. The contract kicked off properly in January 2011 and NNPC insiders say it was explained to the few who knew about it back then as a way of circumventing vandalized pipelines to keep Nigeria’s refineries amply fed with crude oil.

At inception, the contract was never advertised and no competitive bidding was done, a clear violation of Nigeria’s procurement law. Rather than advertise the job as required by law, the NNPC only invited 13 companies to participate in a private bid. There is no evidence that the NNPC obtained certificate of no objection from the Bureau of Public Procurement clearing it for such selective, secret bidding.

Cheaper options were neglected. Two companies, PPP Fluid Mechanics and Ocean Marine Securities, OMS, were awarded the job based on what our sources described as presidential and ministerial discretion. While PPP FM, which handled the crude transportation, was selected through the secret bidding process, OMS was merely arbitrarily invited and handed the lucrative security aspect of the deal. There was no bidding of any kind.

Chairman of OMS, Idahosa Okunbor, told PREMIUM TIMES the NNPC directly approached his firm to provide security coverage for the crude oil transportation because of its longstanding ‘sterling reputation in maritime security’.

PPP Fluid Mechanics got the contract after offering to transport the crude using Very Large Crude Carriers – super tankers – used in transporting crude oil. OMS got the contract to provide security for the 22.2km (12 nautical miles) journey, despite every other waterways and pipeline security arrangement that existed at the time, including the Nigerian navy which patrols the country’s waterways.

The two companies initially got N5.4 billion payment by NNPC, for a three-month trial, documents sighted by PREMIUM TIMES show. While N3.43 billion went to the transportation logistics, OMS got at least N1.97 billion.

“This brazen case of impropriety has, till date, been sustained by a tight web of secrecy,” one of our sources said.

“I do not have details” of the contract, NNPC spokesman, Ohi Alegbe, told PREMIUM TIMES more than one month after receiving our inquiries, and weeks after he later announced the corporation was canceling the contract.

Paying the cabal

Idahosa Wells Okunbo

This contract was conceptualized and executed in a classical mafioso style.

After the then Petroleum Minister, Deziani Alison-Madueke, in 2010, got the then President Jonathan to approve the deal, the NNPC secretly invited bids from international shipping contractors. PPP FM, managed by two Israelis at the time, was handpicked for the logistics part of the job. OMS, managed by Messrs. Okunbor and Ayeni, was invited to handle the security aspect.

There are no records of OMS ever bidding for the contract. Insiders, who spoke to PREMIUM TIMES, also claim OMS never bidded.

They were selected by a board led by Mrs. Madueke, which also had NNPC Group Managing Director at the time, Austin Oniwon, and eight others, including Yinka Omorogbe, the legal adviser to the corporation.

Mrs. Omorogbe, a professor of law, later denied the OMS deal was ever discussed at NNPC board meetings during her tenure.

The two contracts were initially explained as three-month trials to circumvent crude theft from pipelines that were believed to be under serious threat from militants and oil thieves in the Niger Delta. They, however, lasted till August 2015, almost five years later.

How they escaped public scrutiny for the period they lasted is what is likely to shock many Nigerians.

Contract documents indicating the contract was supposed to last only three months were issued on December 2, 2010. Shipping began the following month – January 2011 – after PPP FM provided one mother vessel and three smaller shuttle vessels.

Contract documents seen by PREMIUM TIMES showed the first cost of the transportation contract for the trial period was N3.46 billion ($17.4 million) for the transportation. Mr. Okunbor, the chairman of OMS admitted the security component cost N21.9 million ($110,000) daily, and N1.97 billion ($9.9) for the three months trial.

But the cost of the deal quickly skyrocketed after the three-month trial period ended in March 2011, after it it underwent three price reviews.

Shortly after the project began, Messrs. Okunbor and Ayeni sought to own the entire project, and initiated a takeover of PPP FM.

Eight months later, they completed the takeover and PPP FM’s founders, the Israelis, were kicked out. It is not clear whether the Israelis were merely used as fronts in the beginning. But Mr. Okunbor claimed his company paid them off.

The exit of the Israelis paved the way for one of the bloodiest financial hemorrhages Nigeria suffered during the Jonathan administration, and was perhaps still suffered till July 2015 when NNPC called it off after becoming aware this newspaper was investigating the deal.

With the Israelis out of the way, and believing the deal was now secret, the NNPC and Messrs Okunbor and Ayeni began series of re-negotiations that jacked up the cost of the deal. Three price reviews were done as the project progressed.

First in April 2011. The cost of transporting each barrel of crude was re-negotiated from initial $2.6 to $3.87 on the premise that the initial Israeli owners of PPP FM had, out of desperation, underestimated the resources needed to execute the contract. The security cost remained at $110,000 per day, Mr. Okunbor claims.

Nine months into the new contract, the cost was renegotiated again. This time, the cost was raised to $4.28 per barrel and NNPC agreed to pay a “Take or Pay” value of 1.485 million barrels per month. NNPC agreed to pay PPP FM the cost of transporting 1.485 million barrels of crude in a case where, for whatever reason, it failed to utilise their services.

The last contract, according to Mr. Okunbor, was signed in February 2014 and saw the cost go up to $5.68 per barrel at 4.77 million barrels per month. That was the prevailing rate when the contract was terminated in September 2015.

In August 2014, the former petroleum minister admitted to an oil and gas audience in the U.S. that NNPC was spending an average of $7.52 per barrel to transport crude oil locally to refineries by ship, her estimates remarkable higher than Mr. Okunbor’s.

She was silent on the security costs. But multiple sources confirmed to PREMIUM TIMES the security cost was exorbitant too.

In four years, the NNPC shelled out hundreds of billions to the two companies owned by Messrs. Okunbor and Ayeni for the Escravos-Warri arm of the deal alone.

These sums were paid despite the oil corporation reporting that it kept pumping crude oil from Escravos to Warri refinery through the pipeline, concurrently with the shipping deal.

Recently, during the opening of the renovated Port Harcourt Refinery, Mr. Okunbor confirmed to Thisday that his company did not even ship the total amount projected by the contract. But they got paid even while not shipping crude.

“Currently, we lift 950,000 barrels to the Warri refinery twice a month,” Mr. Okunbor told Thisday. The projected amount was 2.2 million barrels, apparently 300 thousand barrels higher than total actual shipment admitted by Mr. Okunbor and his partners.

While the deal was expected to supply Warri Refinery with 105.6 million barrels of crude, NNPC records show that the refinery only received 61.2 million barrels, combined. At least half of what was expected by ship alone was not delivered.

Warri Refinery Crude Oil Inflow. Data Source: NNPC

The Port Harcourt Refinery Deal

After running the Escravos-Warri Refinery deal successfully and secretly for two years, the NNPC opened the Bonny Island – Port Harcourt refinery route under the same covers. The Bonny Island – Port Harcourt refinery route was to transport 3.12 million barrels of crude oil monthly, with the same contractors, PPP FM and OMS.

Again, there were no competitive bidding before Mr. Ayeni and his partners were handed the contracts.

With the Bonny – Port Harcourt Refinery route added to the portfolio, Messrs. Okunbor and Ayeni were charged with transporting 4.77 million barrels of crude oil to the two refineries, at the cost of $5.68 per barrel, via ships, monthly.

At that rate, Mr. Okunbor said the NNPC paid his companies N5.4 billion ($$27.3 million USD) monthly on both fronts.

That final contract, signed in February 2014, was terminated by the NNPC in July.

Like in the Warri Refinery case, Messrs. Okunbor and Ayeni did not deliver the full amount of crude expected of the contract.

“Currently, we lift… approximately 1.6 million barrels twice a month to the Port Harcourt refinery using our VLCC,” Mr. Okunbor told Thisday in July.

Port Harcourt Refinery Crude Oil Inflow. Data Source: NNPc

Cocktail of illegalities

These local crude oil transportation deals Messrs. Okunbor and Ayeni held until July were fraught with fraud, illegalities and irregularities, experts in the oil industry say.

Those familiar with the deal said the NNPC board, in the first place, had no businesses approving the initial contract in December 2010 because the cost exceeded their approval limit of N5 million, allowed by its laws, and $20 million US dollars allowed by Nigeria’s procurement laws.

The initial amount for the trial phase of this contract is not within the approval limits of NNPC board (below $20 million) as Messrs Okunbo and Ayeni would like the public to believe. It is $27.3 million. This is split into $17.4 million for the transportation and $9.9 for security.

When Messrs Okunbor and Ayeni got the contract to ship for three months after the trial period, the price per barrel was raised to $3.87 per barrel. At that rate, ($3.87 for 2.2million barrels per month for three months), the renewal was worth $35.4 million ($25.5 million for transportation and $9.9 for security). That was certainly above the NNPC board approval limit.

Nine months after the first contract review, cost was further jacked up to $4.28 per barrel and NNPC agreed to pay a Take or Pay value of 1.485 million barrels per month, the total contract value for three months was $38.1 million ($28.2 million for transportation and $9.9million for security). That was still above the approval limit of the NNPC board.

The final contract, which was signed in February 2014, had the cost of $5.68 per barrel at 4.77 million barrels per month. That contract lasted till July 2015, and cost the nation at least $81.3 million.

The decision to extend the contract beyond three months was the second major step in a cascade of fraudulent activities that defined the contract.

In 2013, the NNPC attempted to regularize these illegal crude oil transportation contracts. In October that year, it published an invitation to tender bids for the two crude oil transportation contracts in major Nigerian dailies.

Days later, just as many shipping companies were putting final touches to their bids, the corporation withdrew the call through another newspaper publication.

The state oil company did not give any reason for the withdrawal of the call for bids. But top NNPC sources told PREMIUM TIMES a directive demanding the withdrawal came from the presidency describing the project as a “security contract”.

Despite the only official explanation for the exorbitant contract being the drive to keep the refineries amply supplied with crude oil in the face of ‘failing pipelines’, both the Warri and Port Harcourt refineries received crude oil volumes far less than the contract was expected to deliver.

Between January 2011 and December 2014, the Warri Refinery received crude supplies above two million barrels in six months only, NNPC crude distribution data shows.

In at least three months of 2014, the Warri Refinery did not receive a drop of crude supply. The Warri refinery received an average of 1.2 million barrels of crude oil monthly in those four years.

Port Harcourt refinery never received crude supply up to the full amount expected of the illegal contract while it lasted. In fact, NNPC data did not show any significant leap in supply after the transportation contract was initiated in 2013.

Within the period, the Port Harcourt refinery did not receive a drop of crude oil in three months. It received an average of 536 thousand barrels of crude monthly, at least 2 million barrels less than the contract was expected to deliver.

The NNPC data of crude received monthly by the refineries, obtained by PREMIUM TIMES, showed that in the last four years, the refineries rarely received crude oil close to the volumes awarded for shipment alone from both Messrs. Okunbor and Ayeni, not to talk of pipeline sources that fed the refineries.

Mr. Okunbor admitted to PREMIUM TIMES his company did not deliver the total expected volume. He blamed NNPC for frustrating the deal by refusing to give them crude despite paying out huge sums as monthly Take or Pay – amount paid by NNPC whether PPP FM’s services were used or not, especially when it is NNPC’s fault.

Satellite images obtained by PREMIUM TIMES showed that in some instances, no security boats escorted the ships deployed by PPP FM to transport the crude from production terminals to refinery jetties. Yet, NNPC purportedly paid billions of naira for the security escorts.

“Some of the vessels involved also sat anchored offshore the Niger Delta—presumably at a significant cost to the nation—for long periods when NNPC was not sending crude to the refineries at all,” a recent report by Natural Resources Governance Institute said.

Besides being economically unjustifiable, many industry experts PREMIUM TIMES contacted for comment for this story were shocked by its details and ramifications.

“What happened to the crude oil received by these contractors in the months the refineries were down? Why did the refineries not receive full volumes of crude oil lifted by these contractors?” one expert asked.

Mr. Okunbor explained that the NNPC was not interested in making the refineries work. He said the NNPC stopped giving his firm crude to supply to the refineries in November 2014. He claimed crude supply to his vessels only resumed after Muhammadu Buhari was declared winner of the recent presidential elections.

“No one was committed to making the refineries work,” he said. “We lived on fixed cost for seven months.”

Follow the money

Tunde Ayeni

Tunde Ayeni, one of the owners of the contracting firm in this deal is a long-standing ally of former governor of Bayelsa State, Depreiye Alamieyeseigha, and former President Goodluck Jonathan.

Mr. Jonathan succeeded Mr. Alamieyeseigha as governor of oil-rich Bayelsa state after the latter was removed from office in 2005 following a money laundering scandal. Since his release from prison, Mr. Alamieyeseigha has remained active on the political scene.

Mr. Ayeni, a lawyer, gained notoriety following the corruption trial that brought down Mr. Alamieyeseigha as Bayelsa governor. He was briefly arrested by the Economic and Financial Crimes Commission over the matter and later mentioned in court documents as admitting helping Mr. Alamieyeseigha to execute some deals.

The EFCC has since cleared Mr. Ayeni of complicity in the Alamieyseigha saga. In two letters sighted by PREMIUM TIMES, the anti-graft agency admitted Mr. Ayeni was detained and questioned over some transactions during the Alamieyseigha case, but was cleared of all liabilities.

Mr. Ayeni has since then remained one of Nigeria’s most ambitious businessmen, investing heavily in almost all key sectors of the Nigerian economy – oil and gas, telecoms and power. He’s currently the chairman of Skye Bank and was awarded Commander of the Order of Niger (CON) – a national recognition – by the Jonathan administration.

In the build up to the 2015 general elections, Mr. Ayeni chaired a fundraising dinner organised by Mr. Jonathan’s party, the Peoples Democratic Party, and made a shocking donation of N2 billion ostensibly to fund the president’s re-election. He explained that half of the donation was raised by himself and an anonymous partner while the other half was raised by himself and other anonymous friends.

Mr. Ayeni, whose law firm, Legal Resources Alliance, doubles as the company secretary to PPP FM, turned away PREMIUM TIMES reporters, who visited to request his comments for this story, from his 38 Birao Street, Wuse II, Abuja office.

The NNPC also declined to comment. After weeks of promises and excuses to respond to the website’s inquiry, the state oil company tried to preempt our investigation by announcing it was calling off the illegal contracts.

In the statement announcing the cancellation, the corporation admitted the contractors were inappropriately engaged and that the contract costs were exorbitant. It however did not say whether it planned to recover monies paid to the contractors even while not transporting crude.

The corporation’s spokesperson, Ohi Alegbe, declined to provide further details. He told PREMIUM TIMES the corporation had no details of the contracts beyond the announcement cancelling the deals.

EDITOR’S NOTE: After this story was published, the owners of PPP FM, Tunde Ayeni and Idahosa Okunbor agreed to meet reporters. Their side of the story has now been included as update.

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Emmanuel Ogala is an investigative reporter and heads the Digital Strategy unit of PREMIUM TIMES. Emmanuel, an experienced web developer. Before joining PREMIUM TIMES, Emmanuel worked for 234NEXT. His stories have won awards in the 2014 CNN-Multichoice African Journalist of the Year award and the 2013 Wole Soyinka Centre for Investigative Journalism awards.

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